De-regulation has its consequences, as proven by Boeing catastrophe

"The move to deregulate has been gathering steam worldwide since the 1980s as companies seek to maximize profit, backed by the resurgence of an ideological right that sees the undermining of taxes and regulation as a pathway to eroding and ultimately destroying the welfare state."

In a year dominated by depressing news, one of the most disturbing stories has been the saga of the Boeing 737 Max aircraft and the role that a shaky U.S. regulatory system played in the two fatal crashes of the plane, with the loss of 346 lives.

As the aircraft remains grounded, perhaps indefinitely, we’re learning more about how the Federal Aviation Administration, under pressure to deregulate, had basically handed over much of the oversight for designing the new plane to the company itself, with disastrous results.

As the New York Times has reported, FAA engineers never independently assessed the risks involved with the MCAS software that ended up forcing both planes into a deadly nosedive because Boeing was basically in charge of approving its own aircraft. As the Times reports, “the cozy relationship” between Boeing and the FAA meant that during the certification process for the Max, FAA management sometimes overruled their own staff after getting pressure from Boeing.

Deregulation has had catastrophic results elsewhere. The 2013 rail crash at Lac-Megantic, with the loss of 47 lives, has been linked to a lax regulatory environment that allowed a poorly maintained railway to put a single-man crew in charge of a train of highly flammable crude oil loaded in flimsy tanker cars that ran through the centre of a town.

In addition to the human tragedy, that disaster has cost the Quebec and federal governments hundreds of millions of dollars in cleanup and compensation costs.

And in the U.K., a public inquiry is investigating the disastrous 2017 Grenfell fire where 72 people were killed in a highrise public-housing project. Much of the inquiry will focus on how lax regulations allowed flammable cladding material to be installed on the building’s exterior during a renovation, which ended up turning the building into a raging inferno.

At the same time, we’re facing a deluge of new technological and societal changes, from climate change to the impact of social media to money laundering, requiring new and strengthened regulations to make sure citizens are protected so we don’t end up in some postmodern dystopia.

I was interested in seeing how Canada’s business leaders are dealing with this increasingly complex world in the latest regulatory report from the Canadian Chamber of Commerce. It turns out, they’re not worried at all. In fact, the Chamber thinks the solution to all that ails the world is not more or better regulation, but less regulation.

In an update to its unfortunately titled study, “Death by 130,000 Cuts,” the Chamber says the problem with regulations is that they’re “disconnected, overlapping, sometimes contradicting” and above all “costly.” The argument is that if only business didn’t have all those irritating rules to follow, Canadian industry would be so much more efficient, and profitable.

The Chamber concludes its report by giving a B to the federal government for failing to follow through on its original recommendations

The move to deregulate has been gathering steam worldwide since the 1980s as companies seek to maximize profit, backed by the resurgence of an ideological right that sees the undermining of taxes and regulation as a pathway to eroding and ultimately destroying the welfare state.

The original report, from 2018, starts off with a cute anecdotal story of the two Ottawa girls who were stopped from selling lemonade on property of the National Capital Commission because of some stupid rules enforced by even stupider people. But it admits there’s a dearth of any studies in Canada showing the supposed economic harm done by regulations.

So it goes south and cites studies from something called the Mercatus Center, a Virginia-based think tank that assiduously tracks the cost of regulations and comes to the startling conclusion that if it weren’t for regulations brought in since 1980, the U.S. economy would be 25 per cent larger than it is today — a tidy $4-trillion (U.S.).

And what is the Mercatus Center? It turns out it’s a libertarian think tank dedicated to dismantling regulations and bankrolled by the notorious Koch Brothers, the secretive, union-busting, climate-denying American billionaires who have had a huge influence on turning the Republican Party and the U.S. far to the right. The Mercatus Center specializes in big scary numbers. It recently did a study that estimated the cost of “Medicare for All,” the promise of progressive Democratic presidential candidates, at a gob-smacking $32.6 trillion.

And while the report claims to be worried about regulations hampering budding lemonade entrepreneurs, it’s not hard to see who’s really behind this lobbying push. The report’s sponsors are oil and gas firms like Enbridge and Suncor and pharmaceutical companies including AstraZeneca. The report makes sure to complain about the regulatory costs of building pipelines and why it’s a bad idea to tighten regulations on drug prices.

The Chamber makes a big point of citing the need for less regulatory overlap between Ottawa and the provinces, a good idea, and for making sure that Canada is onside with its trading partners to align its regulations internationally, with one exception. It specifically warns against co-operating with the European Union because its stricter rules “would be economically damaging for Canada.”

This quest for the lowest common denominator is also a theme of our airline industry, which has gone to court to challenge new government rules to protect airline passengers who face delays, cancelled flights or lost luggage. It’s an unbelievably arrogant move by airlines on a PR level. Rather than welcome the new rules as a challenge to improve their systems and fix their terrible public image, they’d rather spend millions on legal fees.

John McKenna, who heads the Air Transport Association of Canada, recently complained that the compensation required in the new passenger bill of rights is “very high.” He added, “They’re trying to meet international standards and do better and I don’t see why.”

That’s right, Mr. McKenna. We’re Canadians. Why do any better? Let’s reach for second or third best. All this comes as we learn that Calin Rovinescu, Air Canada’s CEO, has just made a neat profit of $52.7 million by exercising some stock options. That’s in addition to the $10.5 million in cash and equity compensation from the airline this year.

I’d call that world class, Mr. Rovinescu. But Canadian passengers should be happy when they’re not charged for a pack of pretzels.

The views, opinions and positions expressed by all iPolitics columnists and contributors are the author’s alone. They do not inherently or expressly reflect the views, opinions and/or positions of iPolitics.

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Alan Freeman is an Honorary Senior Fellow at the University of Ottawa’s Graduate School of Public and International Affairs. He came to the U of O from the Department of Finance, where he served as assistant deputy minister of consultations and communications. Alan joined the public service in 2008 after a distinguished career in journalism as a parliamentary reporter and business journalist for The Canadian Press, The Wall Street Journal and The Globe and Mail. At the Globe, he spent more than 10 years as a foreign correspondent based in Berlin, London and Washington.